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TMI Blog2022 (7) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... red the fact that the issue is debatable in nature as various recent rulings of Hon 'ble High Courts are in favour of assessee. 4. The learned CIT(A) erred in not considering and adjudicating the appeal with regard grounds of appeal as raised before him but in confining himself to the issue of allocation of corporate overheads to the units claiming deduction U/S 80IB/80lC. 2. From the above grounds, the sole substantive issue raised by the assessee is regard to challenging of the rectification order passed by the Assessing Officer (AO) u/s. 154 of the I.T.Act 1961and confirmed by the ld.CIT(A). 3. The brief facts of the case are that the AO completed the assessment u/s. 143(3) on 28.10.2011 determining the total income at Rs.401,50,38,460/-. Letter on within the four years, the AO issued notice u/s.154 of the I.T.Act on14.10.2015 proposing to rectify the order passed u/s. 143(3) of the I.T.Act. By observing as "excess claim of deduction u/s. 80IB and 80IC needs to be disallowed". Against this, the assessee filed letter, which is placed at paper book page NO.191. On 30.10.2015 the AO sent a letter to the assessee and proposing to allocate the corporate expenditure to the uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be split between the units claiming deductions under section 80IB (Yanam) and 80IC (Baddi) units respectively. Yanam 80 IB Unit Baddi 80 IC Unit TTO of the Company (DRL) Sales/income 78,66,36,730 206,31,19,015 3828,03,81,450 % on TTo of the company (DRL) 2.05% 5.38% Corporate overhead expenditure allocated on the basis of % 2,59,74,074 6,81.66,106 Hence, these corporate overhead expenditure needs to be allocated based on the turnover as per the table above. The profits eligible for deduction after allocating the corporate overheads is worked out as under :- Yanam 80 IB Unit Baddi 80 IC Unit Profits as stated 37,49,35,794 100,41,99,143 Less : allocation of corporate overheads 2.59,74,074 6,81,66,106 Profits of eligible units 34,89,61,720 93.60,33.037 Eligible deduction (30%) 10,46,88,516 (100%) 93,60,33,037 Less: Deduction claimed 11,24,80,738 100,41.99,143 Excess claim of deduction 77,92,222 6,81,66,106 Thus, the resultant excess claim of deduction needs to be disallowed and added back to the taxable income. Omission to do so resulted in excess claim of deduction u/s 80IB Yanam unit of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a mistake, invariably of facts and figures, apparent from record. We have filed our objections with the AO on the ground that, the AO had undertaken review of the order in guise of rectification and debatable issue cannot be a reason for passing order u/s 154. Since allocation of corporate overhead to units eligible u/s 8018 and 80lC is a debatable issue before law and varied interpretations have been given by various courts on this as aspect, non- allocation of corporate overheads to units cannot be a reason to pass order u/s 154.However, without considering the objections made by the assessee, the A.O passed order u/s 154 on 04.01.2016 allocating corporate overheads to the units eligible u/s 80IB and 80lC. In this regard our submission is as follows: 1 . In case of Dr.Reddy's Laboratories Limited for the AY 03-04 & 04-05, CIT(A) in ITA No. 0041/CIT(A)-II, Hyd/2012-13 and ITA No. 0042/CIT(A)-II, Hyd/2012-13 held that an issue which needs application of mind cannot be treated as mistake apparent from the record and does not fall under the purview of section 154. And further, the IT AT also upheld the order of CIT(A). II. Review of order by AO not permissible The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h (ITA No. 416/2009) b) CIT VsRicha and Co (2001) 252ITR 40 (Del) c) CIT Vs Udaipur Distillarv Co Ltd (No 3) 267 ITR 366 (Raj); d) CIT Vs Udaipur Distillarv Co Ltd (No 1) (2004) 267 ITR 358 (Raj); e) Jasatdal June and Industries Ltd Vs CIT (2004) 266ITR 587 (Cal): IV. Submission on ground of merit Without prejudice to the above argument we would like to bring to your kind notice that the proposed allocation of corporate overhead by the AO is not warranted in view of the conditions placed by Se.80 IS & 80 IC restricting the deduction to the income derived from the said units which is also applicable in context of the expenditure thereby not requiring the allocation of corporate overhead. > Income Tax provisions governing deductions or tax incentives restrict the Scope of deduction only to the income derived from such undertaking. When the deduction is restricted only to the income derived from such undertaking, provision of this section cannot be extended to expenditure incurred at Corporate office while computing the deductions. > The undertakings which are availing the tax deductions are independent in nature and have distinct factory license, management and work f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 5 had discussed the issue. They hold that: The next ground Is that the CIT(A) erred in confirming the assessing officer's allocating corporate administrative overheads and expenses on the basis of respective turnover vis-a-vis total turnover of the company in computing profits eligible u/s. 10B, 80IB and 80HHC of the IT Act. Brief facts of the issue with regard to allocation of administrative and other expenses to Units enjoying deduction u/s. 10B, 80IB, etc. The assessing officer noticed that the assessee company has not allocated the expenditure incurred on account of payment of sales commission to Directors, remuneration paid to directors and other general expenses to the units enjoying deduction u/s. 10B /80HHC/ 801B of the I T Act, 1961. The assessing officer found that a sum of Rs. 10,40,07,000/- was debited towards remuneration to directors besides other expenditure claimed as Corporate expenditure which is not allocated to units enjoying exempted income. The assessee submitted before the assessing officer that each of the unit have their own administrative staff, offices and other expenditure which are accounted in arriving at the profit of the undertaking. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication of the expenditure of the export division, there is no basis other than allocating the total indirect cost on the basis of turnover. The AO accordingly should have apportioned expenditure on the basis of turnover of various units. But the AO did not allocate the expenditure in the assessment or took any remedial action u/s 147 or 263 of the act. The AO rectified the assessment order u/s 154 of the Act holding the above issue as a mistake apparent from the record. The only contention of the assessee is that allocation of corporate overhead to the eligible units is at best a debatable point of law and any matter involving debatable point of law cannot be rectified u/s. 154; Having heard the assessee and having considered its submissions as regards the issue whether AO under s, 154 has the power to rectify such order, I find it necessary to reproduce the provisions of s, 154 which are as under: "154 (1) With a view to rectifying any mistake apparent from the record an IT authority referred to in s. 166 may,- (a) amend any order passed by it under the provision of this Act; [(b) amend any intimation or deemed intimation under sub-so (1) of s. 143; (lA) Where any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed u/s. Comments 1 Paidi Bhimavaram Unit Section 10B Without allocating corporate overheads 2 Bachupally Unit Section 10B Without allocating corporate 3 Yanam Unit Section 80IB Without allocating corporate overheads 4 Baddi Unit Section 80IC Without allocating corporate overheads 2. We submit that, the assessee has claimed the deduction under respective sections, without allocating the corporate overheads to the tax holiday/special units while filing return of income. 3. It is submitted that, the income & expenditure which are related and directly allocatable to the special units have been quantified and deduction has been claimed for the special units. Draft assessment order:- 4. The Assessing Officer ("AO") has issued Draft Assessment Order dated 31.12.2010. The status of deduction claimed for 4 units is as under in the draft assessment order:- S.No. Name of the Unit Deduction claimed u/s. Status in draft order 1 Paidi Bhimavaram Unit Section 10B 100% of deduction disallowed for want to ratification letter 2 Bachupally Unit Section 10B 100% of deduction allowed 3 Yanam Unit Section 80IB 100% of deduction all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 80IC 100% of deduction allowed ITAT 12. Aggrieved by the Final Assessment Order on the issue of allocation of corporate overhead for Paidi Bhimavaram 10B unit, the Appellant herein filed an appeal before the ITAT in ITA.No.2229/Hyd/2011 raising the ground that corporate overhead should not be allocated. The Hon'ble ITAT vide order dated 2 January 2017 at para 64 (refer Annexure 1) confirmed the DRP direction and held that corporate overhead should be allocated, however, the Hon'ble ITAT held that net corporate overhead expenditure should be allocated. However, in so far as tax holiday benefits in respect of other 3 units were not before the ITAT as it was not part of the Final Assessment Order. Hight Court 13. Aggrieved by the order of the Hon'ble ITAT in holding that corporate overhead should be allocated, the Appellant has filed appeal before High Court and the said "Substantial Questions of Law" are admitted and pending final disposal. Rectification u/s 154 14. The AO has issued notice dated 14.10.2015 (Pg. 190 of the paper book), very close the expiry date of statutory limitation period of 4 years from the date of the Final Assessment Order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under regular assessment, the same cannot be a basis to determine whether the said disallowance should be also restricted for 80lB and 80le units ignoring the fact that both the proceedings are completely different and only if the proceedings are legally valid the addition proposed could be sustained. In case the proceedings initiated under Section 154 of the Act is not valid in law as the issue sought to be rectified is debatable, then the addition cannot be sustained. 21. Assuming without admitting! had the same disallowance was done in revision proceedings under section 263 or in reopening proceedings under section 147 of the Act! the Appellant may not have valid grounds to question the same. In fact the DRP has also suggested the same. However! the AO without initiating proceedings under section 263 or 147! has resorted proceedings under section 154 in the fag end of the proceedings. Further, the order under section 154 is passed beyond 4 years. 22. Without prejudice to above submission on the validity of proceedings under section 154 of the Act! the Hon'ble ITAT in the Assessee's own case for the AY 2007-08 (referred supra) (refer Annexure-1) at Page no.48 and pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nan.com 362 9. Hon'ble chandigarh tribunal judgment in the case of S.R.Industries Ltd. vs. ACIT 62 taxmann.com 677 10. Hon'ble chandigarh Tribunal judgment in the case of S.R.Industries Ltd. vs ACIT 62 tgaxmann.com 384 11. Hon'ble Mumbai Tribunal judgment in the case of ACIT vs. Mahindra & Mahindra Ltd. 86 taxmann.com 162 12. Hon'ble Chandigarh Tribunal judgment in the case of Stanley Industries vs ACIT (40 taxmann.com 144) 13. Hon'ble Madras High court judgment in the case of CIT vs. Hindustan Unilver Ltd. 42 taxmann.com 132 14. Hon'ble Mumbai High court judgment in the case of CIT vs Kanmani Metals & Alloys Ltd. 183 ITR 327 15. Hon'ble Calcutta High Court in the case of Tide Water Oil Co(India) Ltd vs CIT (353 ITR 300). 10. The ld. AR of the assessee also submitted that if rectification u/s.154 is accepted by Hon'ble Tribunal then the AO amy be directed to follow the ITAT direction as per para No.64 of the ITA No.2229/Hyd/2011 for AY 2007-08. 11. The ld. DR relied on the order of the lower authorities and he further submitted that it cannot be said that corporate expenditure was incurred only for the units other than the tax exempted units and the Directors has ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs, assessee filed the copy of the Board of Industries only in the case of Bajpally Unit and for the other Unit, no such ratification letter was filed. Therefore, the AO allowed deduction u/s 10B for Bajpalli Unit only. The assessee raised objection before the DRP along with a letter dated 15.07.2011 stating also that the corporate overheads were not allocated to various units before granting/disallowance u/s 10B of the Act. The assessee argued before the DRP that it has been claiming deduction u/s 10B as per the approval given by the Development Commissioner of VSEZ and that this certificate was issued by the Commissioner under the delegated authority of Board of Industries. The assessee placed reliance upon the decision of the Tribunal at Delhi in the case of DCIT vs. Valliant Communication Ltd in ITA No.2706/Del/2008. Further, the assessee also filed a letter dated 10.06.2011 from the Asstt. .Development Commissioner VSEZ stating that the Board of approvals rectified the approval dated 21.02.2003 vide letter No.14/1/2011-EOU dated 18.1.2011. The DRP taking the note of the approval/rectification by the Board of Industries held that the assessee is entitled for the deduction u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.5 and following the decision of the assessee's own case for A.Y 2003-04, this issue is set aside to the file of the AO for re-examination of the claim on similar lines. For the sake of ready reference and clarity, the relevant paragraphs are reproduced hereunder: "12.4 Without prejudice to the above, it was further contended that, the A.O while computing the corporate Overhead, has considered corporate expenditure including finance charges, but has failed to consider interest income and gain on foreign exchange fluctuations which are also attributable to corporate activities only. Hence while computing corporate Overhead allocable to the said units, he has to necessarily net-off the corporate income from the corporate expenditure and net only should be considered as corporate Overhead allocable. 12.5 We have considered the issue. This issue was discussed by ITAT in assessment year 2003-04 in assessee's own case from para 14 to para 18 onwards. The issue was set aside to the Assessing Officer observing as under: "18. We have carefully gone through the order of the Tribunal in the case of Wipro GE Medical System Ltd. cited supra and wherein it was held that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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